Allis-Chalmers Energy says that due to the decrease in the active rig count in the United States, it has taken several steps to reduce costs. The principal steps are summarized as follows:

Reduction in the workforce of approximately 235 people in the Unites States. Reduction of certain day-rates paid to personnel. Termination of two yard leases and consolidation of operating yards by converting certain locations to satellite status or yards with reduced functions. Reduction of certain employee benefits for personnel at all levels. It is estimated that these actions will reduce costs by approximately $21.7 million on an annual basis. Most of these actions were implemented in mid-January with the full benefit being realized in mid-February. Allis-Chalmers will continue to look at its cost structure and make further adjustments as necessary dependent on business conditions.

Allis-Chalmers added that the deteriorating rig count domestically began to impact its Oilfield Services segment in December 2008. In addition to cost reductions, the strategy is to focus marketing efforts on the most active shale plays and continue to diversify its customer base with competitive pricing and with its complement of new equipment and technology acquired over the past two years. The Oilfield Services segment continues to benefit from its business in Mexico through its Tubular Services division. Activity in Mexico is expected to grow in 2009 due to the expected growth of offshore drilling activity.

Micki Hidayatallah, Chairman and Chief Executive Officer of Allis-Chalmers said, "It is unfortunate and difficult to layoff personnel who have contributed to our success. As we have implemented these actions we have been careful to ensure we can be responsive to our customers and provide them with the highest quality of service and equipment. The cost cutting actions we have implemented follow our previously announced plans to limit capital expenditures to critical replacement and maintenance expenditures in order to maintain our financial flexibility during these times."

He further said, "Our strategy from the beginning has been to try to mitigate the impact of cyclical risk by diversifying into the international markets where larger multinationals or state companies operate and long-term contracts are generally available. We believe our Rental Services segment provides attractive cash margins and relatively fixed overhead costs. We intend to be opportunistic and aggressive both domestically and internationally to defend and increase our market share in the rental market. During 2008 our Rental Services segment began generating revenues from Libya and Colombia, in addition to our existing business in Mexico. We expect to lead with our rental equipment in the recently announced joint venture in Saudi Arabia."

Hidayatallah added, "Although we have limited visibility on drilling activity in the U.S. in the second half of 2009, we believe we will see growth in our international business. We continue to believe that the cost cutting actions and strategic initiatives we have taken will allow us to reduce our borrowings under the revolving line of credit by the end of 2009."

Tags: Allis-Chalmers Energy